Q&A: Should I Consider Debt Settlement to Pay Down My Credit Card Debt?

Question:During college, I racked up quite a credit card bill (about $35,000 in credit card debt plus $8,000 in student debt). I have stopped using the cards and have been paying above the minimum every month.

I try to be aware of my finances and even use services like mint.com to keep track of my spending trends and budget. But, due to the financial and credit crisis, my fixed rate credit card at 9.99% changed to a variable rate card at 14.00%.

I talked to a California based company,and they want me to go delinquent on my card payments and to pay them $7000 into an "escrow" account so they can try to negotiate down my debt with the credit card.

My other option is to try credit consoling or debt consolidation, but my employer runs my credit each year and I do not want to risk my job to get my credit cards into line companies.

Do you have any advice for me as to how to absolve my credit card debt? I really feel stuck.

-Brett.

Answer: Brett - Don't assume that your credit card interest rates will stay the same for the next 10 years. In fact, don't assume they'll stay the same for the next 10 minutes.

You suggested that you're entertaining several options to get out of credit card debt. First off, the settlement option is a bad idea because it will trash your credit more so than it would trash someone's credit who had a delinquency problem, which you don't. Forget about that option.

The credit counseling option is a good one because your credit report remains clean. It will also cut your time to pay off the debt to about 3-5 years.

Be sure to choose a reputable company who is part of the NFCC, at NFCC.org. Don't stop contributing to your 401k. Best of luck.

-John Ulzheimer

John Ulzheimer is a nationally recognized credit expert, president of Consumer Education for Credit.com and contributor to On The Money. Learn more about him at CreditExpertWitness.com.